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EU confronts Deutsche Bahn on competition

The European Commission is taking legal action against the German government for failing to open up the rail transport sector to rivals of Deutsche Bahn. This comes as something of an embarrassment for the rail operator.

The German government is in the dock over not liberalizing the railway sector

The European Commission, the EU's executive body, is taking the German government to court over non-compliance with the bloc’s competition rules in the rail market.

The commission says the rail network operator DB Netz is not independent enough of state-owned Deutsche Bahn's passenger and freight services, and the dispute has ended up in the European Court of Justice in Luxembourg.

Brussels initiated proceedings over contractual violations two years ago and a report in the Financial Times Deutschland quoted the spokesman for Transport Commissioner Siim Kallas as saying on Thursday that "since then, Germany has made no progress whatsoever."

The lawsuit comes as a serious blow to Deutsche Bahn, whose CEO Ruediger Grube has for months been complaining about the rail market in Europe not being adequately liberalized.

Commenting on the European Commission's move, Reinhard Boeckh, head of the press office of Deutsche Bahn told Deutsche Welle: "This is the end of a process that’s been going on for years. In this regard the position of the German government is the same as that of Deutsche Bahn. The government is on our side."

"In Germany, we have a rail market where there's much more competition than in the rest of Europe. There are over 320 companies operating in this sector. You don’t find that in any other European country," he added.

CEO Grube had accused the French of "flagrant competition violations." In contrast, he said: "Germany's rail services are operating fairly," referring to the fact that while any foreign rail company can operate in Germany, the same is not possible in France."

The case is being dealt with at the European Court of Justice in Luxembourg

"The French government put up every obstacle it could to liberalizing the rail sector across the European Union earlier this year," Boeckh said.

EC clampdown

But the European Commission is not convinced that the German rail market is operating in a fair manner. It wants to make it impossible for board members of railway companies to influence the allocation of sections of track to competitors and charge for the use of the track.

And according to EU regulations, board members of Deutsche Bahn are not supposed to sit on the board of a railway infrastructure provider such as DB Netz at the same time. Board executives are not allowed to move between the holding and the network operator.

Boeckh, however, maintains that the organizational structure of the boards does not violate European Commission regulations.

"DB Netz, which is responsible for distributing tracks, comes under the board of Deutsche Bahn but it is separated, that is, its decisions are not discussed with the rest of Deutsche Bahn. There is in fact a European Commission regulation that allows this sort of a setup," he told Deutsche Welle.

Some analysts say that since Grube took over the reins of Deutsche Bahn just over a year ago, the close ties between the holding and its operating company, DB Mobility Logistics – which besides carrying freight is also responsible for passenger transportation – have increased.

Boeckh confirmed that five managers are simultaneously on the boards of both companies.

Germany's Supreme Administrative Court also recently objected to the personnel links. The judges ruled that legal advisers of the holding company cannot advise DB Netz in the future on issues involving the allocation of tracks to competitors.

Buses to offer competition

On Thursday, the same court dealt a further blow to Deutsche Bahn, ruling that long-distance bus operators can compete with trains in Germany but on condition that the price they offer for a particular route is considerably lower than the one offered by DB.

CEO Grube has complained about a lack of liberalization in Europe's rail market

The ruling looks set to transform public transportation in Germany. Until now, there have been few national bus services in the country with the exception of those operating from and to Berlin. This is in keeping with a clause in the Public Transport Act of 1931 which allows national bus routes only in exceptional cases and only if Deutsche Bahn does not object.

The privilege was due to come to an end by 2011 at the latest, in accordance with the agreement between the members of Germany's governing coalition.

Eyeing UK high-speed railway

These developments come at a particularly awkward time for Germany's national rail operator, which is itself looking to expand in Europe.

This week, Deutsche Bahn was reported to be in talks with Britain about running its trains on the country's only high-speed railway. This move could break the monopoly of rival Eurostar, which uses the High Speed 1 (HS1) line.

"We are discussing several options with them (Deutsche Bahn)," Mark Bayley, head of state-owned London and Continental Railways (LCR) confirmed.

LCR, which operates the high-speed, 110-kilometer railway linking London and the Channel Tunnel has a 30-year concession to run the high-speed line and stations.

Deutsche Bahn is seeking to dominate the rail market both at home and abroad

'Divestment in line with liberalization'

Deutsche Bahn has expressed interest in running direct rail connections between London and the continent following the liberalization of the European cross-border rail passenger market at the start of the year.

This comes on the back of the company's takeover of British transport group Arriva to create Europe's No.1 passenger carrier. The 1.58 billion pound (€1.91 billion, $2.36 billion) deal saw the German rail operator enlarging its footprint in rail, bus and logistics services outside of Germany.

While London's bid to reduce a budget deficit of nearly 11 percent of GDP is the primary reason behind the sale of HS1, Bayley said the divestment would also be in line with a European trend of removing conflicts in rail.

"High Speed 1 will no longer feel any incentive to act in the interest of Eurostar," he said. "The European Union wishes to see regulators enforcing this principle of a separation of the commercial and management interests of infrastructure and operation."